INTERVIEW - LME chief sees 1998, '99 copper surplus
By Tiffany Woods
biz.yahoo.com
Thursday April 2, 8:47 pm Eastern Time
SANTIAGO, April 2 (Reuters) - World copper markets likely will post a surplus this year and in 1999 if companies' current production plans continue unaltered, Lord Raj Bagri, the chairman of the London Metals Exchange, said on Thursday.
''There is every likelihood that we will have some surplus,'' Bagri said in an interview with Reuters during a visit to Chile.
''As a result of the crisis in Southeast Asia, and not withstanding the effect that the demand for copper'' exceeds supply ''in the United States, there is a possibility that we are heading toward a degree of surplus this year and perhaps a larger surplus during the coming year,'' he said.
''But the surplus may not be as big as a lot of people think because a lot can happen in the meantime,'' he said, declining to give figures.
A surplus would eventually call for quick-fix measures, he said.
''At some stage, the players in the industry will have to come to a conclusion that if there is a surplus, they will have to take'' action,'' he predicted. ''We have not yet reached that stage in the copper industry.''
China, which many copper producers have hailed as the savior that will eat up stocks, will not by itself be enough to pull producers out of the surplus, he said, adding that China has been used as a scapegoat.
''China could have a very important influence,'' he said. ''Various people are using the Chinese angle to promote their views -- whether they are pessimistic or optimistic about the market -- but no one really knows what the Chinese situation will be.
''But by itself, it will not be enough to take care of the market surplus.''
Bagri would not speculate on the price of copper, but he did say he was optimistic about its long-term prospects.
''I'm not pessimistic in the long run with regard to copper as an industry or for prices, but we could have a short-term aberration,'' he said.
Spot copper prices fell approximately 40 percent from June 1997 to late February 1998.
Earlier Thursday, Metal Bulletin Research predicted that world copper prices should recover to about 80 cents a pound toward the end of 1998. Late Thursday afternoon in New York, the May copper futures contract on the COMEX division of the New York Mercantile Exchange settled at 77.20 cents a pound, up 0.45 cent on the day, after holding above Wednesday's four-week low of 76.20 cents. On the LME, copper managed to hold above $1,700 a tonne on Thursday.
Metal Bulletin Research also forecast on Thursday that the copper industry would see surplus production of 360,000 tonnes in 1998 and said that figure would increase in 1999 unless miners make production cuts. The LME's Bagri said he believes that producers, when faced with unsustainable prices, will naturally make a correction.
''If the prices are unrealistic, they will automatically come to a realization that beyond a certain number, it does not pay to make more investments. The investments may have to be decreased or postponed for a certain period of time until the supply-and-demand balance catches up,'' he said.
With respect to the possibility of creating a cartel similar to the Organization of Petroleum Exporting Countries, or OPEC, to avoid price fluctuations, Bagri expressed fervent opposition to that idea. He reiterated that he favors free competition in the copper industry.
''History has shown that even where there is an OPEC-type arrangement (and where) there are still enough gaps within the system, you cannot in today's day and age create a total monopoly in order to regulate prices,'' Bagri said. Such a system ''in my view is doomed to failure.''
If metals producers really want to help themselves, they need to look at their costs and relations with customers, he said.
Turning to his own domain -- the LME -- Bagri said there are no plans to increase membership fees because the LME does not need extra revenue. As for declining ring particpation, he said there is a ''misconception'' about it.
''The current membership of 15 is more than adequate,'' Bagri said. ''The important thing is not the number of people. The more important thing is the volume which is conducted on the floor of the exchange.
''We are looking all the time to make sure that the ring membership remains viable, and if there are additional steps required to ensure that, we will not hesitate to take them.''
The LME will open warehouses on the East Coast of the United States and in New Orleans this year, he concluded. |
